Sugar's star on the rise as profits at Amstrad head into freefall

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Sir Alan Sugar is not known for his subtle approach. So he may have missed the irony that Amstrad, the electronics company he set up almost four decades ago, reported a slump in profits yesterday on the very day the business tycoon returned to the airwaves in the second series of BBC's The Apprentice.

The man who revels in telling each week's most hapless entrepreneur "You're fired" could have some soul-searching to do after presiding over a poor start to the year for his company.

Amstrad, immortalised by its cut-price computers in the 1980s, mainly makes television set-top boxes these days after it was forced to junk production of its e-mailer home videophone. The group revealed last September that it was to stop producing the hybrid phone and e-mail device, which never took off, and yesterday Sir Alan said it was running though its remaining stocks.

Far from being the "no-brainer for the consumer" that Sir Alan promised at the e-mailer's launch in March 2000, Amstrad ended up having to slash the price of the device to shift units.

At 31 December, it had only "minimal" stocks remaining, which it expected to sell in the second half after reducing the price to just £19.99 from £79.99 at its launch. Meanwhile, the price of set-top boxes is also plunging, contributing to a 12 per cent fall in pre-tax profits to £12.5m in the six months to 31 December. Sales fared worse, sliding 21 per cent to £49.6m. Amstrad warned that the "inevitable downward pressure on selling prices was an ongoing trend in this industry". But it said it had cut costs to help mitigate the impact of price pressure on profits.

Sir Alan said the company was preparing for a new generation of "smart phones", which can use Voice-over Internet Protocol software that is slashing the cost of calls for those consumers happy to chat to their friends over a broadband connection. It will sell its VoIP-enabled phones on a contract basis to telecom companies or service providers rather than through retail channels.

The Amstrad chairman said he still expected sales in the second half of its financial year to be better than anticipated.